Southwest Ends an Era While American Begins a New One

It was a sentimental day over in Dallas yesterday when Herb Kelleher officially stepped down as Chairman of the Board of Southwest Airlines. It won’t, however, be the end of his involvement with the airline. He’s still going to be around for at least 5 years. Apparently he’ll be focusing on getting a more fuel efficient replacement for the airline’s 737s. Rumor has it that the new plane will be powered by Wild Turkey.

With the end of Herb’s tenure in Southwest management comes the end of an era of true airline people. I know, it’s funny to say that since Herb is a lawyer by trade, but he knew how to run an airline. And drink. And smoke. A lot. He’s not the corporate-type, and he’s not afraid to be very blunt. There’s really nobody made of that kind of metal anymore. Crandall is gone, so is Bethune, and so are countless others who built this industry on their own backs. It really is the end of a era.

So it was fitting that at the same time this happened, American stepped into a new era for the airline industry. The plentiful and cheap seats that we’ve known for a long time are history . . . at least until (if?) fuel costs begin to subside. American was just the first one to take the plunge.

American not only announced that it would slash domestic capacity in the fourth quarter by 11 to 12%, but it also said it would retire at least 75 aircraft and it would start charging $15 to check your FIRST bag. The second bag will still be $25. Why are they doing this? We’ve talked about it a million times. High fuel costs + weakening demand = doom and gloom in the airline industry. But more important than “why” is “what” does it mean to you as a traveler?

08_05_22 bringoutyourdead

The capacity cut will help keep fares up after the heavy summer travel season has passed. So get ready to continue to pay more. Start readjusting your sense of what a fair fare would be, because it’s going to need to be higher.

No details have been released as to which flights will be going away, and American never responded to my query, but we do know that 40 to 45 of the planes will be mainline, another 35 to 40 will be RJs, and there will be an undisclosed number of turboprops going away as well.

Of those mainline planes, most will be, as expected, the gas-thirsty MD-80s that are either now bound to fly for Allegiant or be earthbound for Miller Brewing Co. Those flight cuts could come from anywhere in the US, but I have to think that St Louis is going to see further shrinkage. Meanwhile, they’re also retiring some of the A300s. These are exclusively flown to the Caribbean, so you’ll see smaller planes, if not fewer flights, down there. There will also be RJs and turboprops going away. I’m not sure where the cuts will be, but it wouldn’t surprise me to see the California turboprop flying disappear as well as some of the west coast regional flying. This is, of course, all speculation.

And then there are the baggage fees. Oh boy, what a can of worms this opens. It’s funny that AA was the lone holdout on the fee for checking a second bag for a long time, but now they’re the first to jump right in and charge for the very first bag. This is going to be an ugly transition period.

Now, people will do anything they can to avoid checking a bag. But wait, you still can’t bring liquids over 3 oz through security, so what can you do? Well, you can try to sneak liquids in, and I’m sure many people will. You can just suck it up and pay the fee for checking bags as well, and some will have to do that. I think it’s a safe bet that most people will try to cram as much as they can into a carry-on, and that leads to filled overhead bins and possibly some pretty ugly fights at the gate. What if the overheads are full? Will they charge you to gate-check your bag? There are so many painful operational scenarios here that would keep any customer service agent up at night.

But ultimately, it was American’s realization that as fuel costs continue their upward trajectory, they really don’t have a choice. This is truly the least imaginative way to raise money, but it’s the EASIEST way. Raising fares isn’t even as easy as this. And right now, they’re going for quick and easy. So, once again, brace yourselves when you have to travel. This is going to contribute to an even more difficult experience at the airport. Practice meditating and lay off the coffee when you’re heading out on a flight. The industry is going to be fundamentally changing, and it’s not going to be pleasant while it happens. Hopefully, when things settle down, airlines (existing or new) will find a better way to do business, but for now . . . yikes.

31 Responses to Southwest Ends an Era While American Begins a New One

  1. Ben says:

    Living in Dallas i really have no choice but to fly AA. I have put up with a lot of crap from this airline and this baggage charge is the LAST straw. I want the AA execs to know that from now on I will do ANYTHING to avoid flying your airline. I will go over to Love Field and fly SWA and happily make a stop to get to where I am going.

    And as a share holder I have a message to Mr. Arpey…You have lost my confidence in your ability to run the airline. I now have no problem voting to fire you.

  2. Jeff K says:

    Why would the turbo props go if they are still some of the most fuel efficient planes out there ?

    And ff the ticket prices are going up and the service going down even more, should they re-regulate the industry? Sure, during the regulation years tickets were very expensive but if my memory serves (I was a kid then) the service was miles beyond what we have now.

    So if I’m going to pay anyway why not at least get a better experience?

    I know this all won’t happen – just fun to speculate.

  3. Jeff K says:

    btw, Brilliant Monty tie-in…very funny.

  4. CF says:

    Jeff K – Not sure how efficient those turboprops are. They’ve got 36 ATR 72s with 64 or 66 seats. Those do mostly Caribbean flying, and they’re probably pretty decent planes. On the other hand, they still have 29 Saab 340s with 34 seats. Those aircraft have an average age of 16 years, and I can’t imagine they’re very efficient. If anything went away, I’d bet it would be the Saabs.

    As for re-regulation, my friends and I discuss this all the time. I would be surprised to see it, but it’s interesting to ponder.

  5. Zach says:

    Why are U.S. airlines so averse to European-style revenue generation–things such as logo planes, selling ad space on overhead bins, charging for priority boarding (obviously, Southwest has implemented a version of this system), cutting back on creature comforts. The Euro airlines also charge for bags, granted, but their fares are also low enough to justify it.

    Is it that U.S. consumers are too fickle or picky, or does it have something to do with the regulation system here? It just seems odd that you can pay ~$125-200 r/t from Dublin-Athens or Stanstead-Barcelona, while the same distance trips within North America cost twice that. It’s no secret.

  6. CF says:

    Zach – By “European-style,” I assume you’re talking about the low cost carriers like Ryanair, Easyjet, etc. Those models have slowly taken shape here in the form of Allegiant, Spirit, and the now defunct Skybus, but they certainly haven’t taken off the same way they have in Europe yet. I think part of the reason is that we have longer stage lengths here in the US and people want more of a product.

    Dublin to Athens is just shy of 1,800 miles and that’s about as long as you get in Europe. Even that’s an anomaly. Most European flights are much shorter, and people will put up with a lot less for an hour or two.

    Now, that doesn’t mean there isn’t a market for this type of product in the US. But there is also some demand for a more full service product, and that’s what the legacy carriers have always liked to say they are. Unfortunately, they’re trying to be all things to all people, and that means they’re going to anger some of the people in the process. In this case, they’re playing to the price sensitive crowd instead of the business traveler who might be willing to pay more up front for less hassle.

  7. Zach says:

    Thanks for the informative reply. Sounds like it’s a matter of segment length coupled with the fairly high expectations of the American consumer.

  8. AN says:

    What was the earthbounc for Miller Brewing comment about?

  9. L1011 says:

    AN – Parking airplanes, scrapping ‘em then making beer cans out of them. At least I think that’s what means. I don’t want to put words in CF’s mouth. Please correct if I am wrong.

  10. Sheila Englebardt says:

    Not sure what CF means by demand for a ‘full service product’. What was the last time anyone got any semblance of that unless flying First or Business class? First the food disappeared, then the peanuts and pretzels, and, soon there will be a charge for any type of beverage (I think). Tuesday evening, my full service airline (the one now charging for one bag) cancelled my flight due to weather – admittedly not their problem. I was at the gate. In order to be ticketed on a later flight, I had to go back to the ticket counter (first had to retrieve my ONE bag at baggage claim), stand in a long line of others waiting to be rebooked, than after booking, take my bag to security check-in, and go back through TSA security. If this is full service, I’d like a definition of half service :) Fortunately, I still have a choice of airlines, at least for a little while until they all jump on this insane bandwagon. I can just imagine the lines at TSA with the additional carry-on luggage, the lack of space for the luggage onboard, red tickets galore…. Need I say more. Looks like more local vacations for me and driving when meetings are within driving range – at least, even with the price of gas, I might be able to share expenses with others going the same way. What a mess!

  11. Artie says:

    Wow man – I was ready to puke when I read that AA was going to do the first bag charge. I always had an inkling it would come to this, just not so soon. As to Zach’s query, I think one reason why the European low-cost model has only seen modest success here in the States is that consumers like myself PREFER one-price bundles that encompass everything I will need. (By the way, I don’t consider Southwest as similar to a European definition of low-cost airline). Think the Cable/Internet/Phone bundles or the Wireless packages with text, etc. When I was flying back and forth to St. Maarten, I always chose AA over Spirit, even though Spirit was sometimes $80-$100 cheaper, because I appreciated the convenience of knowing that I paid a set amount that would cover certain expected usages – like baggage. I didn’t have to worry about having $2 in my wallet for water or trying to figure out how much more I would pay for checking bags, etc. It really is a convenience thing.

    That being said, I really REALLY wish Airlines would do things like sell advertising space on, in, under, around, ANYWHERE on the plane in order to raise more revenue. I mean, they could make a very pretty penny with all that advertising space, without nickel and diming their passengers. I completely understand that rising fuel prices require creativity and some tough decisions – and I also completely understand and agree that fares need to increase. I wish airlines would just DO THAT (modestly raise fares to cover costs) instead of ruining their products whilst simultaneously charging for everything.

  12. Shannon says:

    On your comment, “It’s funny that AA was the lone holdout on the fee for checking a second bag for a long time, but now they’re the first to jump right in and charge for the very first bag…”

    Southwest still doesn’t charge you to check a second bag, and it’s just $25 for a THIRD bag–that’s where I’m putting my money. It will be interesting to watch the customer reaction on this one.

  13. A says:

    Going back to regulation or not, the only way I see the airlines surviving with current fuel prices is going back to high fares, regulated or not.
    Growing up I was one of the only kids in grade school that had ever flown on commercial aircraft. Most of my classmates parents hadn’t ever flown. Even after de-regulation in the 1980′s most of my friends weren’t jet setting anywhere. It was leisure travel for the wealthy and for business. People didn’t spring break in Mexico, a trip to Europe was once in a lifetime, family vacations were by station wagon. I didn’t notice air travel become the default means of transportation for all classes until the 1990′s.
    I contend that the past 20-25 years have been a temporary reality in the face of de-regulation and cheap energy. I fully expect that someone born today will grow up much like I did, where the few, not the majority, were air travelers.

  14. David says:

    In Europe it should be remembered that the service from Ryanair is quite different to the service from one of the big network carrier like BA / Lufthansa. The prices are quite different as well !

    For a 2-hour flight i.e. 800 miles each way, on Ryanair at an off-peak time in Europe, you’re very lucky to get a return fare below about $125.
    For a 4-hour flight – i.e. 1600 miles each way, reckon on $200-$250 as a minimum for a return, unless you’re extremely flexible on when you want to fly.

    That means booking months in advance, web check-in, no checked bags, no onboard food/drink, and Ryanair’s really uncomfortable plastic seat with their very unique style of ‘service’. You’re paying cheap, but you get cheap in return. Suits me fine though !

    If you look really hard, you can find these renowned ultra-cheap fares in May or September, but it often means flying for 1 hour on a Tuesday afternoon in November to an airport in the middle of nowehere an 90 mins drive from a town that is cold and wet.
    In Ryanair land, Oslo airport is over 100 km from Oslo. Vienna airport is not even in Austria !

    If you choose to fly in July or August from the big city to the beach, there aren’t a lot of bargains !

    When it comes to bag charges, Easyjet and Ryanair charge from the very first bag. Airport check-in costs money. Anything beyond tap water on the plane costs money.

  15. Zach says:

    David,

    I’m with you in that I would much rather pay for no frills and truly receive no frills. Plastic seats are fine if that’s what I pay for. Then again, we’re probably the exception to the rule. In today’s climate, $250 for a $1,600-mile roundtrip (roughly Chicago-Vegas) is still highly reasonable. That being said, I understand that Ryanair and Easyjet offer far less than even the stingiest North American carriers while increasing inconvenience to the traveler in terms of the far-afield airports and expensive bag check fees. For whatever reason, I usually end up in Europe about once a year, and I usually travel by train. Last year, the one time I flew Ryanair, it was between DUB-EDI, and the roundtrip cost me $60. Granted, that’s a 45-minute hop, and Chicago-Indianapolis, for instance (roughly the same distance), costs at least $107 with a 3-month advance purchase.

    Artie,

    I think you make a strong case for why the Ryanair model has failed to catch on in the US, but just to clarify: I didn’t mean to infer that Southwest follows the Ryanair model. I was just mentioning that they’ve begun charging for priority boarding, much like Ryanair does.

  16. Yo says:

    I had one experience with RyanAir, from Dublin to Pisa.

    Late, cramped, crowded and horrid.

    “Have you ever been in a turkish prison?”

    Not fun.

  17. David M says:

    Artie wrote: “That being said, I really REALLY wish Airlines would do things like sell advertising space on, in, under, around, ANYWHERE on the plane in order to raise more revenue.”

    Yet people criticized America West and US Airways for putting ads on the tray tables. I’ve flown a few times and it doesn’t bother me. As the ad is on the surface of the table, you don’t see it unless the tray table is down, and if the tray table is down you probably have something on top of it anyway.

  18. james says:

    If a plane gets decked out in ads like an auto in a Nascar loop how much will it REALLY bring down fares?

    I don’t care about exterior ads, but give/keep the interior a minimum level of aviation continuity. It already annoys me when I can’t turn the brightness down on seatback TV ads, (Frontier DTW-DEN Tuesday morning,) so I prefer the drab filthy butter colored interiors of planes to garish ads.

    If all airlines started plastering ads on seat backs, tray tables, overhead doors, floors (like in the supermarket,) lavatories, FA uniforms, cockpit doors, and safety cards (“In case of a water landing – brought to you by BOUNTY”) I think I’d puke.

    It might up the ancillary level of profit for airlines – but I don’t see it proportionately tranferring to the consumer.

    james…

  19. CF says:

    AN – Yep, L1011 is right (thanks, L1011). It was my apparently too obscure reference to them being converted into beer cans. And since Miller Lite is my crappy American beer of choice, I figured I’d give them the nod.

    Sheila – Well, I think the demand is out there for some sort of product that isn’t a la carte. As all the existing carriers become focused on complete a la carte pricing, an opportunity opens up for someone to introduce an all-in type of product. Not right now, but maybe in the long term.

    Shannon – Yes, sorry. You’re right about that, but I meant to say that it was the last of the legacy carriers. Southwest, as always, doesn’t follow the crowd.

    A – I tend to agree that this is the fundamental change in the industry we are going to see. Fares will have to be more expensive, and so fewer people will be able to afford to fly as often. And that’s why we need more capacity cuts like American’s (and possibly more than that).

    David M – I was one of the people who criticized America West, but that was only because I had a terrible ad with a huge picture of a dude staring at me the whole flight. The next time I had an ad for Verizon and that didn’t bother me at all. I think the reality is that people don’t like change. So any time you come up with something that is different or less generous than the previous policy, people balk. But they’ll end up getting used to it unless it severely degrades the travel experience. Tray table ads? Not a big deal for the overall experience. Checking the first bag for $15? It could cause big problems.

  20. Artie says:

    James – would you rather glance at some ads on your tray table, or would you rather read billboards for mile upon mile when you have to drive because you were priced out of flying?

    Southwest Airlines had one mission – to provide the freedom of flight to ALL Americans. I find this mission to be admirable and one that we should continue to pursue. Pricing people out of flying with endless fees is an unacceptable long-term solution.

  21. Daren S says:

    I seriously doubt that charging $15 to check a bag is going to have much of a positive financial impact for AA in this climate. Most of the US carriers have spent years focusing on bean counting rather than delivering customers what they want, a good service experience. Each time they start charging for something, they fail to take the opportunity to improve the experience. Take food as an example. Rather than taking a look at food and get creative with ways to get people to spend more on the plane, they just stock up the galley with junk which you will only touch if you are absolutely desperate. This industry seriously needs a shake up, starting with removing the limit on foreign airlines taking a controlling stake in US carriers. Remove the competitive barriers and let the market decide what it wants.

  22. Remove the Barriers? says:

    With all respect to Daren S. I don’t know if removing barriers to entry is a great solution. There are already hardly any barriers to entry, hence the reason there are always startup airlines willing to undercut the legacies and provide less service while driving fares down to the point of unsustainability. Spirit, ATA, USA3000, Go!, just to name a few. We don’t need more of that. It will just result in the likes of Ryanair setting up shop here and service getting even worse and our remaining few real airlines going belly up. (Or “tits-up” as they like to say over there)

    We don’t need cheaper fares. What we need is fares that reflect the cost of doing business, and the cut in capacity that will cause a reduction in air traffic congestion and hence overall better service. I can only see that happening with less competition, not more.

  23. Daren S says:

    I agree totally that we don’t need cheaper fares but I don’t see start-ups as providing true competition in these market conditions, they just can’t get scale. By removing foreign ownership rules, this will allow consolidation and by generating scale allow greater efficiency and ultimately profitability. The Open Skies deal struck by the EU and US is under threat if this doesn’t happen, so it will be interesting to see what transpires in the next couple of years.

  24. Remove the Barriers? says:

    That’s exactly the problem, these startups can’t succeed in anything we need the legacies for (real network to small and international destinations), but, at the same time they drastically drive down fares on the routes they compete on. Well, when you squeeze the balloon on that side, causing the legacies to lose money on those routes (e.g. Las Vegas, Orlando), the only place the balloon can stretch and the airlines can make their money, is international routes and routes to small airports, which don’t have the competition. So congratulations, you have more flights and overcapacity on your flight from podunk to Disney World, thanks to Ted, Spirit, ATA, Southwest, and blah blah blah — now a traveler who wants to fly from ORD to MEM (500 miles) gets soaked for 500 bucks — or who wants to fly from ORD to Europe gets nailed for over 1500 bucks. Because those are the few places left where they can make ANY money, so they now have to abuse it to even stay afloat.

  25. flylbb says:

    Raise fares???

    The Avg two hour flight needs about $50-60 per pax to cover gas these days. The Avg Transcon needs about $110 per pax.

    So, to cover all other costs, pay for the pilot contracts, and make a little bit to appease investors and to internally reinvest in the product, the two hr flight needs to price out over $200. The Transcon over $350.

    So let’s see….CHI-HOU’s cheapest price is $119 and LAX-BWI is at $99.

    this is a problem….this is not modestly raising fares.

  26. A says:

    flylbb – I would have no problem paying $400-500 for a 2 hour roundtrip flight. Problem I see is that ticket prices do not reflect the cost of flying across the board. I often fly MSP-DFW for next to nothing, a heavily traveled route with plenty of competition. Then I fly MSP-YYC and pay 4 to 5 times as much for a similar distance but with much less traffic and zero competition.

    Odds are NW is making money on that YYC route and losing on the DFW. I’m perfectly fine with the price I pay going to Calgary, but think it makes zero business sense to turn around and lose it on the Dallas one. If you can’t make money flying somewhere – don’t.

  27. Marks says:

    I guess there is the other option – carry less baggage.

    I suppose winter flights and business flights mean people have a bulk of clothing to carry.

    However, I never cease to be amazed by the size of luggage that some people carry.

    Summer holiday travel should easily be able to be limited to cabin baggage.

    I know that it is a matter of opinion what people should take – but when people take half their stuff ‘just in case’ they need it, and they are going to places where they could buy the stuff ‘if they ever need it’ and then they cart the stuff back cos ‘they didn’t need it after all’ I scratch my head.

    When you work out that you could save twenty pounds per passenger times say one hundred – that’s a ton of payload not carried – and a lot of fuel also not needed to be used or carried.

  28. Marks says:

    Blast – I forgot to mention.

    Jetstar Airways in Australia is sort of doing the same thing as AA.

    However, it is being a little more PR conscious.

    Its ‘normal’ fares are going up, but it has introduced a Jetstar ‘light’ fare for cabin baggage only at a lower rate by about $20. ie you pay extra if you have a checked in bag – but they make it look like a discount for a cabin bag only. LOL.

  29. Jetstar’s way around it is a great idea. Its unbundling but in a way that is positive for the customer not negative.

    Now the problem in the US comes down to would the GDSs as they’re constituted now support this? I’m no expert on them but I’d say no, at least not clearly. You’d have to have some fare class that doesn’t include it. However almost nobody reads the fine print on their fare class, and getting all of the various sellers to support it would be tough.

    Now if the airlines could selectively release those fares to sellers that support that (Or even better, just sell them on their website.) this would be a boon.

  30. CF says:

    Welcome back, Nicholas Barnard. I haven’t seen a comment from you in a little while, so it’s good to have you back.

    I think it’s a safe bet that the GDSs don’t support this, but the airlines could still be like Air Canada and make it work on their website, at the very least. One of these days, maybe the GDSs will figure out that their systems are so archaic that they no longer serve the customers.

  31. Michael says:

    Not that I fly AA very often, if ever, but I know that they won’t be the only carrier to adopt the $15 first bag fee. I completely understand they’re under the gun with the sharp increase in fuel costs, but ignorance is bliss. Don’t nickel and dime me, just add it to the cost of the fare.

    I think the scenarios the CF listed in the initial post are all likely possibilities due to this new fee. If it was just included in the fare we wouldn’t have to worry about running out of overhead space, fights around gate-checked baggage, longer lines at TSA, etc., etc.

    I’m crossing my fingers that either (a) AA realizes how poor an idea this is and rescinds the fee and/or (b) none of the others follow suit.

    -MJT

Leave a Reply

Please use your real name or nickname instead of your company name or keyword spam.